Generation Y's property double act

Atika Fraval and Sam Perversi-Brooks are solving their dilemma by buying a home away from home.
Photo: Ken Irwin

To rent or buy? A new breed of home buyers are answering that old question by doing both.

For Sam Perversi-Brooks the realisation came after almost two years of fruitlessly searching for the right first property to buy. The 29-year-old architect and his partner Atika Fraval, a communications executive, rent in Fitzroy Street, St Kilda, a virtual ground zero for inner-city living.

For $400 a week they live above Baker D. Chirico, have the George Hotel 50 metres away and can take their pick of restaurants within walking distance. But the more they searched for a house to buy, the more likely it became they would lose their preferred lifestyle.

''It became apparent that a lot of people with a whole lot more knowledge than us recommend renting where you want to live and look at purchasing in places that are affordable,'' says Mr Perversi-Brooks, who, along with his partner, is now looking to buy a pair of investment properties in Tasmania while continuing to rent in St Kilda.

They are not alone. Increasingly, due to issues of affordability and heightened concerns about lifestyle and long-term commitments, Generation Y investors now entering the property market as they establish careers and begin to think about future housing needs are bucking the traditional approach.

Instead of just searching for a family home in the suburbs - looking outwards from the CBD until their budget meets the prevailing price - they are finding different ways of becoming real estate owners.

Last year a survey of aspiring Generation Y (roughly those born between 1980 and 1992) property buyers by mortgage broker Mortgage Choice found that 43 per cent intended to make their first purchase an investment property. Renting in one place, or even living at home with patient parents, while buying somewhere else is now a commonly held plan.

For 32-year-old visual arts graduate Naomi Flynn and her architect husband, Alastair, the journey began in 2008, when they were renting in inner-western Yarraville and looking to buy in the area on a budget of $350,000.

''It became pretty clear that we were priced out of the areas where we wanted to live. We wanted to stay somewhere that suited our lifestyle and our work,'' Naomi Flynn says. ''We weren't willing to compromise our lifestyle to have a house.''

They moved to North Melbourne, renting a two-bedroom apartment in 2010, but at the same time they bought a three-bedroom home in Ballarat for $248,000 as an investment property. The renovated Californian bungalow was only 15 minutes' walk from the centre of the regional city.

The Flynns are optimistic about capital price growth, while the shortfall between rental income and the mortgage payment is an easily manageable $625 a month.

''We would never put ourselves in the situation where we could have experienced mortgage stress,'' Naomi Flynn says, and avoiding the straitjacket of a daunting financial burden is a common theme among Generation Y.

Mr Perversi-Brooks and his girlfriend were aghast when they were told they could borrow up to $900,000 to buy their first property. What they believed they would lose was flexibility when it came to working and travelling, as well as early retirement options and the ability to live on one income if necessary.

''We realised we don't necessarily want to live our lives so that we lock ourselves into working for the next 25 years to pay off a first mortgage,'' Mr Perversi-Brooks says. ''Part of this is using money creatively to enable something else.''

His search with his partner is an example of how affordability can outpace conservative budgeting for hopeful Generation Y buyers.

Their hunt also began in the inner west, where in 2010 their budget of $420,000 could only cover a house that was best suited for demolition, before moving on to Brunswick and Coburg, where they looked at spending $400,000 on an industrial space such as a garage or warehouse that could be converted for a further $100,000 to $200,000. The idea was sound, but developers had the same idea and repeatedly outbid them.

The eventual solution was investing in Tasmania, where Mr Perversi-Brooks has family to provide guidance and rental yields are particularly strong.

After several visits and many hours online, he and Atika are preparing to buy a three-bedroom home in a small town south of Hobart on the Huon River for about $250,000, as well as a beachside house 30 minutes out of Hobart for around $190,000.

The former is on 1200 square metres, while the latter already has two titles, meaning there is scope for future developments, which could prove to be both financially and philosophically rewarding.

''In [the Huon Valley] there are these horrible little townhouses going up at the back of these quite beautiful houses on the main street,'' Mr Perversi-Brooks says, ''so part of it for me is how to add real value and do it in a meaningful way that creates a precedent for other people to do this better.''

Achieving a balance, whether between lifestyle and affordability or aesthetic and financial expectations, is central to Generation Y's entry into the real estate market. They want to be free to remake their lives if necessary - such as when Naomi Flynn recently stopped working and began studying midwifery - while becoming property owners.

''We felt like we couldn't afford anything we wanted in Melbourne, so let's look regional,'' she says. ''You've just got to do what you can to get started on the property ladder.''

Gen Y landlord boom

As head of Property Investor Services at Hocking Stuart Brunswick, Christopher Snell has had an influx of Generation Y investors starting out as landlords.

His clients include newly qualified doctors to tradespeople who have been in the workforce since their teenage years, and along the way Mr Snell has identified some of the young buyers' defining characteristics. ''A Gen Y landlord is reasonably relaxed.

They're certainly open-minded about the tenants who might take up residence in their property,'' said Mr Snell.

''The Gen Y investor is quite aware of that bottom line and they're certainly more trusting than Generation X; they're more likely to take professional advice.''

In Brunswick a property investor can secure a recently built two-bedroom apartment for between $480,000 and $600,000, which can in turn rent out for $450-$520 a week in a market where vacancy rates are generally below 1.5 per cent. Mr Snell counsels neophyte property investors on what they are legally required to do.

''We advise them to prepare a buffer account for the provision of maintenance, because they might be told that a hot water service needs to be replaced tomorrow for $1000, or it might be finding $600 for a new upright stove,'' he says.

''You can't wait, the provisions of the Residential Tenancies Act are very clear.''

With establishment costs, management fees can be approximately 10 per cent of rental income in the first 12 months, and around 7 per cent in subsequent years, but the expense can come with good advice, even if the clients don't fully understand it.

As Mr Snell says,''We tell them, 'You don't have to know how a tax depreciations schedule works, you just have to get one'.''